Appeals Court rules against Wilson County school board in pension-spiking dispute

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  • The Wilson County Board of Education owes more than $400,000 to help fund a former assistant superintendent's retirement benefits, based on a ruling Tuesday from the state Court of Appeals.
  • The decision marked the latest legal battle involving North Carolina's 2014 law against pension spiking. Wilson schools had challenged the law as unconstitutional.
  • The unanimous Appeals Court decision overturns a trial judge's ruling and restores an earlier decision from an administrative law judge.

The Wilson County school board will have to contribute another $400,000 toward a former assistant superintendent’s retirement, based on a state Court of Appeals ruling Tuesday. It’s the latest legal battle over North Carolina’s 2014 pension-spiking law.

The unanimous three-judge Appeals Court decision reverses a trial judge’s ruling in favor of Wilson schools. The Appeals Court restores an administrative law judge’s earlier decision in favor of the Retirement Systems Division in the Department of State Treasurer.

“I applaud the Court of Appeals opinion that unanimously overturned a lower court ruling,” said State Treasurer Dale Folwell in an emailed statement. “The law was implemented by the previous treasurer. It is not our job to tell school boards or others what to pay administrators. It is our job to protect and defend others in the plan who are asked to pay for it.”

The Wilson County Board of Education had challenged the pension-spiking law as unconstitutional. “[T]he Act does not violate Article I, Section 10, of the United States Constitution; does not violate Article IX, Section 7(a), of the North Carolina Constitution; and is not retroactively applied to Petitioner,” wrote Appeals Court Judge Allegra Collins.

The Wilson school board is the petitioner in the case.

The dispute stemmed from Assistant Superintendent Susan Bullock’s retirement in 2018. Because her final annual compensation exceeded $100,000, retirement system officials applied the state’s anti-pension-spiking law, NC Gen. Stat. 135-5(a3).

A calculation required by the law found that Wilson County schools owed $401,763.96 to cover costs of Bullock’s retirement benefits. The school board appealed the ruling. An administrative law judge ruled in favor of the retirement system in September 2021, but the school board appealed to Superior Court.

“Petitioner alleged that the ALJ’s final decision was erroneous because the [pension-spiking] Act is unconstitutional and impermissibly retroactive,” Collins wrote. A trial judge ruled in favor of the school board in June 2022.

Appellate judges rejected the school system’s argument that the pension-spiking law violates the US Constitution’s prohibition on state laws “impairing the Obligation of Contracts.”

“If the employee’s salary increase took effect after the Act was enacted on 30 July 2014 and resulted in the contribution-based benefit cap factor analysis concluding that an additional contribution was required, then the Act did not impair the employment contract,” Collins wrote. “Accordingly, Petitioner has failed to establish that the Act substantially impaired its employment contract with the employee. As such, we need not analyze whether the impairment was reasonable and necessary to serve an important public purpose.”

Collins and her colleagues also rejected the notion that the Wilson County school board had an implied contract with the retirement system. “Petitioner cites no authority to support its proposition that such an implied contract existed, or that it has a vested right in keeping constant its amount of contribution to the TSERS pension fund.”

TSERS is the Teachers’ and State Employees’ Retirement System.

“There is no set rate that an employer must contribute, but rather it fluctuates to remedy gaps in the pension fund,” Collins wrote. “Petitioner has therefore failed to show that the General Assembly manifested a clear intention to be contractually bound to keep constant the amount an employer is required to contribute to the pension fund. Accordingly, Petitioner has failed to show that a contractual obligation was present. As such, we need not analyze whether the Act impaired a contract or whether the impairment was reasonable and necessary to serve an important public purpose.”

The Appeals Court rejected the school board’s argument that the additional retirement contribution would hurt its ability to provide a “sound basic education” to students. That would amount to a violation of the NC Constitution.

“Petitioner has failed to present … any facts in the form of affidavits, testimony, or otherwise that the payment at issue in this case would undermine its ability to provide a sound basic education to Wilson County children,” Collins wrote. “Furthermore, Petitioner has failed to show that paying its employees the deferred compensation to which they are entitled is not a use that maintains free public schools.”

Nor did the retirement system apply the law retroactively, according to the Appeals Court. “The plain language of the Act indicates that it applies to any retirement allowance for a member who retires on or after 1 January 2015. Because the employee in this case retired on 1 January 2018, three years after Act took effect, the statute was not retroactively applied to Petitioner,” Collins wrote.

Judges Chris Dillon and Toby Hampson joined Collins’ opinion.

Editor’s note: This article was updated to include reaction from State Treasurer Dale Folwell.